Throw Out an ETF, See What Sticks

And Claymore Securities launched eight, including the Claymore/Clear Global Vaccine Index(JNR Quote), which could use its own shot in the arm. It did not trade Thursday. Same with the Claymore/KLD Sudan Free Large-Cap Core(KSF Quote), which I profiled here last month.

In fact, most of the industry's assets and trading volume are concentrated in just a few ETFs. On Thursday, the two largest, the $62.3 billion Standard & Poor's Depositary Receipt(SPY Quote) and the $17.65 billion Powershares QQQ(QQQQ Quote), had trading volume of 133.9 million shares and 107.7 million shares, respectively.

At the other end of the spectrum, HealthShares has 19 ETFs with total assets under management of around $77 million. On Thursday, just 700 shares of the HealthShares Cancer ETF(HHK Quote) changed hands. Trading in the HealthShares Infectious Disease ETF (HHG Quote) was even more anemic: just 100 shares. Another seven, including the HealthShares Autoimmune-Inflammation ETF (HHA Quote) and the HealthShares Cardio Devices ETF(HHE Quote), didn't trade at all.

All of this competition is making it harder for ETF sponsors to attract seed capital to assemble the shares necessary to start trading. Up until now, this funding has come primarily from a group of elite stock traders, known as the specialists, on the floors of the New York Stock Exchange and the American Stock Exchange.

ETF sponsors also rely on specialists to maintain an orderly market in the shares. They buy the component stocks or other securities to assemble new ETF shares when demand spikes, and break up ETF shares into their component securities when it wanes. This can be a profitable business for ETFs that trade heavily. But it's much less attractive to make a market in ETFs that have little trading volume.